UNIVERSITI PUTRA MALAYSIA

A CASE STUDY ON
PETRONAS CARIGALI SDN BHD
(Facing the International Challenges)

WAN ZAINUDDIN HJ WAN MUDA

GSM 1997 7
� 'IESIS

A CASE STUDY ON

PETRONAS CARIGALI SDN BHD

(Facing the International Challenges)

BY

WAN ZJUNUDDIN HJ WAN MUDA

MATRIC NO. : 45161

MASTER OF BUSINESS ADMINISTIUlTION

MALAYSIAN GRADUATE SCHOOL OF MANA.GEMENT

UNIVERSITY PUTRA MALAYSIA.

SERDllNG

SELANGOR DmUL EHSAN

DECEMBER, 1997
 A. Case Study On

Petronas Carigali Sdn Bhd

(Facing The International Challenges)

By

Wan Zainuddin Hj Wan Muda

Matrie No. : 45161

This Case Study is submitted in partial fulfilment of the

I'equirement fol' the Mastel' of Business Aclministl'ation,
Malaysian Graduate School of Management, Univel'sity Putn
Malaysia, Sel'dang, Selangol' Dal'Ul Ehsan.
 Confidentiality Statement

The Case Study is purely an academic exercise undertaken by the

author. The case herewith contains certain information that shall

not be disclosed to the public. Thus no part of this document is to

be reproduced in any form and be used in any manner without

prior written permission from the author.

 Acknowledgement

First, I would like to extend my deepest gratitude and appreciation

to my Supervisor, Professor Dr.Mohd. Ismail Ahmad for his

guidance, comments and valuable suggestions during the course of

preparing this case study. A big thank you and credit shall also be

given to all lecturers throughout the whole MBA programme for

their interesting lecture which makes all of us more clear and

understanding on the business concept and strategy which is

important for today's competitive business environment.

A word of thank shall also go to my wife and children who provide

me a valuable inspiration and have been the most patient,

understanding, supportive and encouraging for taking this course.

Without them, the completion of this case study and the MBA

programme would not have been possible.

Thank you so much - I love you all ..... .

 Originality of the Document

I, Wan Zainuddin Hj Wan Muda, Matric No.: 45161, a final year

student of the MBA programme at the University Putra Malaysia,

Serdang, Selangor Darul Ehsan hereby confirmed that the case

prepared for the above programme is purely the sole effort of my

goodself.

Name: 'all<Zilid
iil:u din Hj Wan Muda
Date : ,1998
PART I
 PART I - CASE

Table of Content

Section Description Page

Dialogue

1 .0 Introduction 4

2.0 Background 6

2. 1 PETRONAS 6
2 .1.1 Vision & Mission Statement 11
2. 1 .2 Shared Values 11

2.2 PETRONAS CARIGAlJ SON BHD (PCSB) 12

2.2. 1 Vision Statement 13
2.2.2 Business Objectives 14

3.0 PCSB Organisation Structure 15

4.0 PCSB Milestones 18

4. 1 Domestic 18
4.2 International 19

5.0 Core Business Activities 19

Domestic
International

6.0 Market Trend in Oil and Gas Industry 25

7.0 Manpower / Workforce Management 28

8.0 Organisational Effectiveness Study (OES) 31

9.0 Financial Situation 32

Epilogue 34
 PART II - CASE ANALYSIS

Table of Content

Section Description Page

1 .0 Executive Summary 35

2.0 Problems and Opportunities 37

3.0 PCSB Vision Statement Analysis 38

4.0 Analysis and Discussions 41

4. 1 Situation Analysis 41
a) Nature of demand
b) Extend of demand
c) Nature of competition
d) Environmental climate
e) Skills of the company
f) Distribution Be Promotion

4.2 Financial Analysis 52

4.3 SWOT Analysis 59

4.4 SPACE Analysis 76

5.0 Strategy Alternatives 81

5. 1 Expansion Strategy 81

5.2 Combination Strategy 84

6.0 Strategies Implementation 86

7.0 Conclusion 91

References
 List of Illustrations

Figures

Figure 1.0 - PETRONAS Group of Companies

Figure 2.0 - PETRONAS Organisation Structure

Figure 3.0 - PCSB Organisation Structure

Figure 4.0 - PCSB Business Activities at Domestic

Figure 5.0 - PCSB Business Activities at International

Figure 6.0 - PCSB Business Activities Focus Countries

Figure 7.0 - PCSB Manpower Distribution

Figure 8.0 - PCSB Turnover

Figure 9.0 - PCSB Profit After Tax

Figure 10.0 - Process of International Marketing Strategy

Figure 11.0 - SPACE Matrix

Tables

Table 1.0 Global Oil Demand & Supply

Table 2.0 World Crude Oil Price

Table 3.0 Asia Oil and Gas Production

Table 4.0 Broad Criteria for Country Analysis

Table 5.0 PCSB Financial Standing Summary

Appendices

Appendix I - PCSB Financial Statement

Appendix u- SWOT Analysis Table

- Table 1.0 External (Industry) Analysis

Table 2.0 Internal Analysis

Table 3.0 SWOT Matrix

 PART 1 - CASE

PETRONAS C.ARlGALI - Facing the International Challenges

Dialogue

Yang Arnat Berhormat Dato' /drus, the Managing Director of PCSB kept on

pondering, looking at the blue sky out of the talJest building in the world, the

Petronas Twin Tower. He was furious on the future of the company. Having nm

the company eversince its inception, he wondered if the company could keep

pace with the current competitive business environment. mth the current

unexpected economical problem fuelled with currency problem facing by the

nation, he thought that he ought to do something rather than sitting down

pondering the future.

He picked up his phone and calls up his secretary. I

Ring ....Ring....Ring ...

Maggie : Hello, what can / do for you Dato'?

YABDato' : Maggie, can you schedule a board meeting on Thursday, 21 81

July. 97 at 9:00 am in the Board Meeting room ?

Maggie : Certainly can Dato� Do you want alJ the board of directors to

attend the meeting?

YABDato' : Yes, please calJ alJ the board of directors like En JamiJ, Dr.
•

KhaJid, En. TaM and Dr. Hashim. Tell them that they aD must

come to this urgent meeting.

The characters in this dialogue are purely fictitious and does not resemble of any real people
either living or dead.

- 1 -
Maggie : Vezy well, I inform them right away Dato� Is there anything you

want me to do ?

YABDato' : That's all Maggie, thank you.

On Thursday, 20th Sept. 1997, in the Board Meeting Room

YABDato' : Good morning gentlemen. I have been thinking hard lately,

pondering how PCSB could cope with the cuzrent competitive

business and economical situation. As this might affect our

business, I think we should do something more that what we

have done to sustain the business. Thus, I hope this meeting can

provide a first step towards developing the appropriate

strategy to be adopted by the company. Any suggestion from

the members ?

En/ami) : WellDato� I agree with you that cuzrent situation certainly wiJJ

affect our business. What more that we are in the oil and gas

industry where we need high investment, hi-tech equipment,

and expertise to nul the industry.

DrKhalid : But what can we do? Uwe depend solely in the oil and gas

resources domestically, we definitely be affected by the cuzrent

economic situation. Unless we expand our business outside

Malaysia.

YABDato' : You mean, we go intemationally ?

Dr. Khalid : Yes Dato� It's a trend these days that many countries expand

their business outside their own countries.

- 2 -
En. Taha : That's a good idea. Do we have enough resources and prepare

to go internationaJJy?

Dr. Hashim : Can you elaborate a bit more what do you mean by that ?

En Taha : Well.....what I mean is that do we have the right people to look

for international business activities. We need experience

people as well as capital.

DrKhalid : I need to add something ... Apart from these resources, we also

need to look at other factors if we were to get into intemational

business like political situation, infrastructure, culture,

economic and many more.

YABDato' : Dr.Khalid, can you prepare a report on the current company

pezformance and situation before we discuss further on the next

course of action.

Dr.Khalid : I certainly can Dato� I will prepare and pass it to aJJ board

members when we meet again in the forthnight.

YABDato' : This meeting definitely a good step towards planning

strategicaJJ y for the future growth of the company. We can

brainstorm again in the next meeting.

(DrKhalid, En. jamiJ, En Taha &Dr Hashim unanimously agreed

with Dato's idea.)

U there is no more question, we adjourn the meeting and meet

again within the next two week, says on the 5 til August, 1997 at

the same time.

********* *********
End of Dialogue

- 3 -
1.0 INTRODUCTION

It was envisaged that globalisation of the world economy in terms of trade

and investment would become more evident with rapid advancements in

transport, communication and information technologies. As the

twenty-first century approaches, the world would undergoing enormous

change, a process of great upheaval and great possibility. In just a few

short years, we have witnessed the dawn of post-industrial society, the

advent of the information age, the rush to computerisation and therefore

intensity competition.

The increasing trend towards regionalism in trade and economical

relationships would make it more imperative for small open economies

like Malaysia to adapt effectively and speedily to the consequent

challenges to maintain their comparative position. International

competitiveness would be a moving target. However, it has the

underpinning objective of maximising and increasing productivity as well

as efficiency.

Business environment has grown dramatically more intense including in

Malaysia, and competition has become more global and more energised.

And technology races on. No longer could business safely ignore their

customer's wants and needs. No longer could personal relationships be

granted. No longer could so much human creativity go so scandalously

untapped.

- 4 -
 PERPUSTAKAAN SULTAN ABDUL SAMAD
UNIVERSITI PUTRA MALAYSIA

Malaysia was a unique country in the sense that it was one of the few

countries in the world which has, within the span of two decades,

succeeded in bringing about a socio-economic transformation of society

which has enabled Malaysian from all walks of life to gain benefit of

development and enjoy a better quality of life . Vision 2020 that paved the

way for meaningful growth and orderly development would offer vast

opportunities and challenges for Malaysian industries particularly in the oil

and gas industries. In the world of rapid and profound change , the role of

a multinational in the oil and gas industry was still one of the continuing

and increasing contribution to the development of national economies and

to the improvement of the quality of life of the communities in which we

operated and whom we shared a common future. (1)

As a significant contributor to the nation's growth as well as major export

earner and contributor to the national revenue, the oil and gas industry has

played a key role in the nation industrialisation journey towards attaining a

fully develop nation status by the year 2020. Being the leading integrated

Multinational Petroleum Corporation, PETRONAS would continue to

spearhead the development of the oil and gas industry and contribute to

the nation through on-going technology transfer and technical skills

training gain in various projects undertaken. In order to realise the above ,

the key to PETRONAS future growth and success was through the market

globalisation such as venturing business activities in the international

arena. Recognising this , the corporation has embarked on a globalisation

programme to expand its operation into it's chosen strategic market

around the world.

- 5 -
2.0 BACKGROUND

2.1 PETRONAS

The first commercial oil development in Malaysia dated back as early as

1910 when the Anglo-Saxon Petroleum Company, forerunner of the

present day Sarawak Shell, developed the Miri oilfield in Sarawak.

Between that period and April 1, 1975, oil companies in Malaysia was

operated under the Concession System for exploitation of the

hydrocarbon. Under the Concession System, oil companies had the

exclusive right to explore and produce oil and gas fields. Royalty and

taxes were paid to the respective state/federal government.

On October 1, 1974, the Petroleum Development Act (PDA) was enacted in

parliament. Under the PDA, the entire ownership and exclusive rights,

powers, liberties and privilege of exploring, exploiting and obtaining the

oil and gas in either onshore or offshore Malaysia were vested in a

(2)
corporation called Petroleum Nasional Berhad.

PETRONAS, the acronym for Petroliam Nasional Berhad, was the national

petroleum corporation wholly owned by the government of Malaysia.

Since its incorporation in 1974, PETRONAS which has been vested with the

entire ownership and control of the country's oil and gas resources under

the Petroleum Development Act, 1974, has grown to become a fully

integrated petroleum corporation, diversifying rapidly from its upstream

activities into the downstream sectors.

- 6 -
PETRONAS has made tremendous progress since its inception in 1914 to

gain a favourable reputation internationally. Today, PETRONAS has grown

into an integrated oil and gas company operating beyond national

boundaries.

Currently, PETRONAS business activity for both domestic and international

level was undertaken by the various group of companies. The PETRONAS

Group of companies consisted of 41 wholly owned subsidiaries, 20 partly

owned subsidiaries and 21 associated companies. Figure 1.0 illustrated

PETRONAS Group of Companies. Meanwhile, Figure 2.0 illustrated

PETRONAS Organisation Structures and business activities at the corporate

level.

- 7 -
 w-tOLLY-O'MVED SUBSIDIARIES PARTL Y-OWNED SUBSIDIARIES

----1 PE1'RONM c:.rIgIIII Bdn _

I
- SlRRI_�

- ___ L_

- PETROIWI c.to-! WOI.)S01 _

- PETROIWI c.to-! 0-- _8hd

r---- P£T� c.tgoI (001 II<"'1II __

I-- � c...,. I\IIOW-.nI __

- PEfRONAII c:.rIgIIII _*__

c.to-!cr..c._IS01_

- �CMgoI o..r.. (U'Q _ Ilo:l

--1. OGPT.tJnaij_S01I1hd IIIO'l
'-- PETROIWI� � fbo .....
-,oil UIO ro- Bdn IIhd (I!O'!I,)
I'£TlIONM G.o Sl.WIJI � __

�--(�--

r----i _-,.fbol'll'll

r----i PE'lJIOJM.8 _C-I__

r----i P£T�IIGY__

...... (T� __

PETROIIAS ...... � __
r----i -
_ __ 1;IId.(ll1�
I
I'ElMONA8 "'-'Y1oIIPI. _
r-
r---t PE1"JIOfoA8 �Co. �
--t -,-UIOo.. __ (�
I
....,..., 1r.,IT�� __

�IfCIT-""eCorp.�_1'lI'II

OTHER COMPANIES
_sw- __

I �.L"*IgPDfl__
-- , -,
r-
_Po18m_
I r- �or--.Cos.a.IIhd(llO'41

I"ET!\()I<WI T_s.w-.__ r- PSP\sI*IO__ (Sl"-)

H �$I;UIINfa(Ply)� r- ��__ (:IO'III

r-
r- 8lr-_......, __
f- llwlg '-II U'O N Co .-)
r- PETROIIAS ow.��

,
r----i� -
,."...... -.g8O'lSM I_)
�III9riT"""b_
".

s.q, -.... �fIG(qJftj

'-- F'E"T"IiI::IfM8 Tn.rob_ - -

- ' �"T� I'ETI\'ONA8 S01_

f- -...._�Bdn_(XI'II1

y..... ��LIIII(3O\Io)
- �",_SA
�l_1Xl"I
IIC»WI __ Ply. lid. .....,.......,,�� ... (&3.fto)
PE"T"AOMM � Co. lid. a.�__ �
PETIIONA8 ,..,..,... Co. lid.
P.T___ F_ Ii,.,.)
o._C<d">g�_1Ihd

FIGURE 1.0 PETRONAS GROUP OF COMPANIES

- 8 -
 I -I 1
BOARD OF BOARD AUDIT
COMMrmE
DIRECTORS

I 1- . .1 1
PRESIDENT ICEO
MANAGEMENT lAMe
COMMITTEE DATO' M. HASSAN MERJCAN: .-

I GROUP PVBUC
AFFAIRS
I
I
I
I
INTERNAL AUDIT

I
I I I
I
HEALTH, SAFETY &
REGIOAAL OFACCS
ENVIRONMENT
I I

I COMPANY SECRETARY &.

LEGAl... SERVICES
I
I
I
I
CORPORATE DEVELOPMENT

I
I CORPORATE PlANNING &
BUSINESS DEVElOPMENT
I

1
EXPlORATION &.
I I TEC�OGY .1 1 I 1 I
)
RESOURCES & REF�ING FINANCE SECTOR
PROOUCTKlN '
MANAGEMENT SECTOR MARKETING SECTOR
SECTOR

I II I
.

J
TRANSPORTATION HUMAN RESOURCES
<>\s
PETROCHEMICAL & MARINE MANAGEMENT
SECTOR SERVICES SECTOR SECTOR

FIGURE 2.0 PETRONAS ORGANISATION STRUCTURE

- 9 -
PETRONAS was now a full-fledged oil and gas company which engaged in

a wide range of activities. covering petroleum exploration and production.

oil refining. marketing. trading and distribution of crude oil and petroleum

products. natural gas processing. transmission and distribution. natural

gas liquefaction and marketing oil liquefied natural gas. and manufacturing

and marketing of petrochemicals and fertilisers. Due to the government's

depletion policy. oil production in the country was levelled off between

600.000 bopd to 650.000 bopd.

Today. within a strong foothold in the country. while building on to its

domestic operations. PETRONAS was actively expanding into the global

market forging towards its vision of becoming a multi-national petroleum

corporation. As PETRONAS President says .... " The most critical challenge

would be to achieve and keep our competitive edge in the international

arena where we would be up against the most established and experience

players. In order to realise the above. we need to re-examizJe ourselves

iUld cOlltlnuously improve 011 everytlJJllg we do in order to achieve the

most cost effectiveness. efficient utilisation of our resources •.... we must

continuously seek improvement in our organisation and respond positively

to the constant changes in the dynamic business environment that we

· ...... " . (3)

operatem

- 10 -
2. 1 . 1 VISION STATEMENT" MISSION STATEMENT

PETRONAS, having consolidated its position at home and with the

expertise and knowledge acquired over the span of 20 years of its

existence, was spreading its wing and venturing abroad to pursue its

"dreams". In order to realise organisational goals, PETRONAS has recently

launched the long term Vision Statement as well as creating a Mission

Statement to benchmark and evaluate organisation success.

PETRONAS VISION STATEMENT

" To be a Leading Oil and Gas Multinational of Choice "

PETRONAS MISSION STATEMENT

" We are a business entity,

Petroleum was our resources,

Our primary objective was to develop and add value to this national

resources,

Our obj ective was to contribute to the well being of the people and the

nation"

2. 1 .2 SIIARED VALUES

In addition to having both Vision and Mission Statement, PETRONAS also

launched organisational "Shared Values" to enhance organisational

objective in achieving the goals.

- II -
 Loyalty Loyalty to the Nation & Corporation

Professionalism - Committed, Innovative and Proactive and

Always Striving for Excellence

Integrity Honest and Upright

Cohesiveness United in Purpose and Fellowship

With the above Vision, Mission Statement as well as establishing "Shared

Values" statement, it was envisaged that PETRONAS employee could foster

a better teamwork, quality product and services which could provide

competitive edge, and hence would portray PETRONAS image, reputation

and success of the organisation not only at home but also at the

international arena.

2.2 PETRONAS CJlRIGALJ SDN BBD

PETRONAS CARlGALI SON. BHD. (peSB) was one of the PETRONAS wholly

owned subsidiaries incorporated on 11 at May 1978. With the increase

business activities in the exploration and production of oU and gas and

good potential for industry development, peSB has been entrusted by

PETRONAS to spearheaded the challenge in the oil and gas exploration,

development and production not only locally but also at the international

arena. To date, peSB was the operator of more than 12 fields, producing

about one third of the country's total oil and gas production. The fields

operated by PCSB locally are Ouyong, Oulang, Bekok, Tapis and Pulai in

Peninsular Malaysia, the Tembungo and Samarang in Sabah, nine oilfield in

- 12 -
 Baram Delta area in Sarawak. Meanwhile, in the international area, peSB

was operating Dai Hung in Vietnam, and few platforms in the Caspian sea

which undergoing development phases.

Currently, PCSB has been involved in a number of projects internationally.

Among the international projects undertaken by PCSB was in the Asia

region such as Thailand, Philippine, Vietnam, Burma, Indonesia, India; in

the Middle East such as in Iran, Iraq, Syria; in Eastern Europe such as

Turkmenistan, Uzbekistan, Azerbaijan; in Africa such as in Sudan and

many more. Through the years, PCSB kept on venturing into new

concession area and aggressively participate in the international arena to

further strengthen its business. (4)

2.2.1 PCSB VISION STATEMENT

Many multinational companies set a long term organisational objectives or

goals known as vision statement. Likewise, as business activities were

faCing a stiff challenge in todays global market environment, PCSB has

also established company vision in realising its goals and objectives. With

the vision, peSB was expected to enhance its capabilities. PCSB vision was

" To Be A MultinatiolJal E & P CompalJY ofClJoice, Creating Value

TlJrough COlJtinuous ImprovemelJt & GrowtlJ ".

- 13 -
2.2.2 PCSB BUSINESS OBJECTIVES

One could argue that it was virtually impossible for an organisation to

function without having establish some business goals or objectives. An

objective set a future target or end result that an organisation wishes to

achieve. It also set a direction where the organisation was heading

towards achieving its dream. As part of globalisation effort to purse its

business activities, PCSB has set few organisational objectives to

spearhead the challenge of the oil and gas industry that was very

competitive particularly in the international arena. PCSB business

objectives were ;

o To actively participate in the exploration of petrolewn resources for the

maximwn benefit of the peopJe

o To attain lull operational and technical expertise through manpower

development and the transfer of technology in the shortest possible

time

o To achieve an adequate production level so as to meet the nation� total

crude oil and gas output

o To ensure maximum Malaysian involvement in the fabricating and

assembling of aD production facilities and provision of ancillary and

supportive services in the oil and gas industry.

The above business objectives were in line with PETRONAS President

wishes who said that" ...The most critical challenge would be to achieve and

keep our competitive edge in the international arena where we would be

- 14 -
 up against the most established and experienced players. In order to be

competitive. we need to constantly re-examme ourselves iUJd

CDlltbluously Improve Oil everytbblg we do in order to achieve cost

effectiveness. efficient utilisation of our resources....... we must continuously

seek improvement in our organisation and respond positively to the

constant changes in the dynamic business environment that we operate

•
11(5)
m.... .

3.0 PCSB ORGANISATION STRUCTURE

Having diversifying its business activities outside the domestic

environment. PCSB basically adopting functional concept of the

organisation structure. Current PCSB organisation structure composed of

essentially five (5) main divisions that were Exploration. Development.

Commercial Services. Domestic Operation. and International Operation.

Each of these divisions was headed by the General Manager who reported

directly to the Managing Director/Chief Executive Officer. Exploration

division focus on finding new oil and gas reserve that could provide

substantial return to the company. Whenever Exploration teams find new

oil and gas reserve. the field development was then be the responsibility

of the Development division to further study how to produce hydrocarbon

from offshore. Development division composed of Petroleum Department.

Drilling Department. Design Department. Construction Department. and

Services Department that specialise in certain work scope. Commercial

Services Division mainly focused on all contractual matters pertaining to

the project development and exploration activities. Meanwhile. for both

- 15 -